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So, I am guessing that I must declare money to the government for taxes. But it can't be much. She is paying $1000 a month to me for her added bills: cable, food, etc.

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As of 2013 the exclusion of gift tax is $14,000, but then with mdeicaid there could be eligibility complications with the 5 year look back.
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frenchmadeline, the issue here probably is about the 5-year-lookback. They definitely don't want the money counted as gifts. It needs to be clear that Mom is paying for her own needs, not giving money away.
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I really don't think it is necessary to declare this amount of money as "income." Parents and grandparents are allowed by law (IRS) to give (gift) their children a certain amount of money (to each child and in each year) without this having any effect on either's tax situation. In other words you would not have to declare it as a gift or as income. Several years ago the amount was $10,000 each; I don't know if this has gone up since then. I also do not know if this would clash with the five year Medicaid look-back that many posters have written about on this forum. Unless someone tells you otherwise I see no good (legal) reason to get a lawyer involved in your family affairs. If anyone reading this thinks I have the facts wrong I am certain they'll post a response. Good luck to you, you are doing a great thing!
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I think you should have a written agreement that she is paying you for room and board. And, yes, you will declare that as income and pay taxes on it (minus the expenses, so that may be breaking even).

You and Gram can agree to anything you want. You trust each other. You may not see the need for a written agreement. But if she ever needs to apply for Medicaid, or if other family members ever raise questions about the money, it will be very helpful to have a paper trail, proving that this money is not a "gift" but her living expenses.
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I am not really caregiving, she is just living with us. I am fixing all the meals, but that isn't a crime! So, technically, she is paying rent and utilities. Do I really need a lawyer to collect rent? Help, I really don't know anything.
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